A corruption storm intensifies

It’s ballooning into the largest corporate scandal in Canadian history, says one newspaper.

On 28 November Pierre Duhaime, the 58-year-old former president and CEO of Montreal-headquartered engineering firm SNC-Lavalin, was arrested by Quebec police at his home. He faces three charges of fraud, conspiracy to commit fraud and using a forged document.

Canadian newspapers, La Presse and the Financial Post, have linked the charges to the firm’s contract to design, build and maintain one of Canada’s biggest private-finance projects, the CAN$1.3bn McGill University Health Centre “superhospital”.

And police want to arrest – for the same set of charges – a second ex-SNC executive, Riadh Ben Aissa, but they can’t because he is in a Swiss prison, having been indicted by prosecutors there for alleged bribery in relation to contracts in Libya and Tunisia.

Duhaime’s arrest, and the redoubled interest in Ben Aissa, bring SNC-Lavalin’s Libya difficulties, which made spectacular headlines last year, ominously closer to home.

Canadian national police, the RCMP, raided SNC-Lavalin’s headquarters last April. The police search warrant, a redacted version of which was obtained by newspapers in January this year, shows that police suspected Riadh Ben Aissa, then an SNC vice president, of paying Saadi Gaddafi CAN$160m in kickbacks for giving major contracts to SNC-Lavalin, Canada’s biggest engineering and construction company.

Ben Aissa was arrested in Switzerland later in April, 2012, and indicted in November, according to Swiss broadcaster RTS, over allegations that he transferred money to Saadi Gaddafi through a network of companies and accounts.

The RCMP also believed Ben Aissa and former SNC-Lavalin controller Stéphane Roy planned illegally to smuggle Saadi Gaddafi and his family to Mexico as the Gaddafi regime fought for its life in 2011. A Canadian woman, Cynthia Vanier, who was retained by Ben Aissa and Roy to go to Libya on an apparent fact-finding mission, was arrested in Mexico in November 2011, and later charged with conspiring to mastermind the operation. She remains in prison, awaiting trial.

For a year now the board of SNC-Lavalin has fought to contain the damage. It fired Ben Aissa and Roy in February 2012. In March Pierre Duhaime resigned after an internal report found he had authorised CAN$56m in improperly documented payments.

In August 2012 it selected Robert Card as new president and CEO. Card joined from CH2M Hill, where he had been president and group chief executive of the international division. Card was also COO in the consortium building the London Olympics complex. Other appointments have followed in what the company has called the “continuing renewal of the board”.

SNC says it observes a strict ethical code, and is cooperating with ongoing investigations. In a statement following Pierre Duhaime’s arrest, SNC chair Gwyn Morgan said: “Over the last number of months we have taken, and will continue to take, measures to reinforce our procedures and strengthen internal controls and processes.”

Clearly, the company is trying to distance itself from the actions of what may be a few individuals. But Duhaime’s arrest over alleged corruption at home, and the complex nature of the Swiss investigation into Ben Aissa, have led some to say the scandal goes deeper.

“The issues at SNC are deep-rooted and permeate the organisation,” Anthony Scilipoti, vice-president of Veritas Investment Research, told the Financial Post. He said other individuals at the company likely had knowledge of these events and should be fired. The SNC-Lavalin affair was “ballooning into the largest corporate scandal in Canada’s history,” the Financial Post wrote.

Company chair Gwyn Morgan acknowledged the growing difficulties when he said in his statement following Duhaime’s arrest: “While none of the charges have been proven, this development suggests that there may be additional facts regarding Mr. Duhaime of which the Board was not aware at the time of his departure.”

Another looming liability is a CAN$1bn class-action lawsuit against SNC-Lavalin launched last year by investors who saw the value of their investment in the company plummet following revelations of irregularities in North Africa.

And yet SNC-Lavalin is doing well. As a terrible 2012 drew to a close, it was announcing big contract wins in Saudi Arabia, Poland and Panama. Its share price has begun climbing again after it plummeted in February 2012 on the news of mystery disbursements.

But whether the 102-year-old firm can navigate out of this typhoon remains to be seen, and with trials pending in three countries, there is still a considerable distance to go.

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